The Administration's FY2005 Request for $25 Billion for Operations in Iraq and Afghanistan: Precedents, Options, and Congressional Action

July 22, 2004
RL32422

Administrations have periodically asked Congress to give the Department of Defense flexibility
in
allocating funds to cover the costs of military operations. Most recently, on May 12, 2004, the White
House requested $25 billion as a “contingent emergency reserve fund” for FY2005
to cover the costs
of operations in Iraq and Afghanistan for part of the fiscal year. If enacted in its current form, DOD
could transfer funds, in any amounts, to individual accounts as long as the Office of Management
and Budget agreed and Congress received a five-day advance notification. The issue for Congress
is a perennial one: to determine how much flexibility the Defense Department may need to carry out
military operations Congress intends to support while also ensuring that funds are used for purposes
and in amounts that Congress endorses.

Faced with the challenge of balancing DOD’s need for some funding flexibility for
operations
with congressional oversight responsibilities, Congress has responded in various ways to DOD
requests. In general, Congress has rejected Administration requests to provide broad authority to
finance military operations in advance. In the run-up to the first Persian Gulf War in 1990, for
example, Congress rejected an Administration request for blanket authority to spend money
contributed by allies.

Congress has, however, periodically appropriated money for ongoing or anticipated military
operations into flexible “transfer accounts,” where DOD can then move funds into
regular accounts
to meet evolving requirements. At the same time, Congress has generally imposed various
restrictions and reporting requirements.

The least restrictive requirements Congress has imposed in recent years applied to $20 billion
that Congress appropriated in the immediate aftermath of the terrorist attacks of September 11,
2001. Although the Administration requested similar flexibility in later supplementals, Congress
gradually reverted to normal practices by limiting the amount of funding in flexible accounts and
by requiring advance notification if DOD decides to spend monies in ways that differ from those
specified in statutory or report language.

By the standards of earlier congressional action, the Administration’s current request for
a
contingency reserve would allow the Defense Department broad flexibility comparable to that
granted by Congress immediately after September 11. In congressional action on the FY2005 DOD
authorization ( H.R. 4200 and S. 2400 ), and appropriations bills
( H.R. 4613 ), both houses limited DOD’s flexibility by allocating most of the $25
billion
to regular appropriation accounts, and setting various reporting requirements. This report reviews
recent precedents for funding military operations, outlines options for monitoring that spending, and
analyzes congressional action on the Administration’s $25 billion request for FY2005.
Congress is
expected to vote on the conference version of the FY2005 DOD Appropriations bill, H.R. 4613,
which includes the $25 billion, before going on recess on July 26, 2004.

Summary

Administrations have periodically asked Congress to give the Department of Defense flexibility in allocating funds to cover the costs of military operations. Most recently, on May 12, 2004, the
White House requested $25 billion as a "contingent emergency reserve fund" for FY2005 to cover
the costs of operations in Iraq and Afghanistan for part of the fiscal year. If enacted in its current
form, DOD could transfer funds, in any amounts, to individual accounts as long as the Office of
Management and Budget agreed and Congress received a five-day advance notification. The issue
for Congress is a perennial one: to determine how much flexibility the Defense Department may
need to carry out military operations Congress intends to support while also ensuring that funds are
used for purposes and in amounts that Congress endorses.

Faced with the challenge of balancing DOD's need for some funding flexibility for operations with congressional oversight responsibilities, Congress has responded in various ways to DOD
requests. In general, Congress has rejected Administration requests to provide broad authority to
finance military operations in advance. In the run-up to the first Persian Gulf War in 1990, for
example, Congress rejected an Administration request for blanket authority to spend money
contributed by allies.

Congress has, however, periodically appropriated money for ongoing or anticipated military operations into flexible "transfer accounts," where DOD can then move funds into regular accounts
to meet evolving requirements. At the same time, Congress has generally imposed various
restrictions and reporting requirements.

The least restrictive requirements Congress has imposed in recent years applied to $20 billion that Congress appropriated in the immediate aftermath of the terrorist attacks of September 11,
2001. Although the Administration requested similar flexibility in later supplementals, Congress
gradually reverted to normal practices by limiting the amount of funding in flexible accounts and
by requiring advance notification if DOD decides to spend monies in ways that differ from those
specified in statutory or report language.

By the standards of earlier congressional action, the Administration's current request for a contingency reserve would allow the Defense Department broad flexibility comparable to that
granted by Congress immediately after September 11. In congressional action on the FY2005 DOD
authorization (H.R. 4200 and S. 2400), and appropriations bills
(H.R. 4613), both houses limited DOD's flexibility by allocating most of the $25 billion
to regular appropriation accounts, and setting various reporting requirements. This report reviews
recent precedents for funding military operations, outlines options for monitoring that spending, and
analyzes congressional action on the Administration's $25 billion request for FY2005. Congress is
expected to vote on the conference version of the FY2005 DOD Appropriations bill, H.R.
4613, which includes the $25 billion, before going on recess on July 26, 2004.

Balancing Flexibility with Oversight

Administrations have frequently asked Congress to give the Department of Defense flexibility
in allocating funds to cover costs of military operations. Most recently, on May 12, 2004, the White
House requested $25 billion in a "contingent emergency reserve fund" for FY2005 to cover costs of
operations in Iraq and Afghanistan during part of the fiscal year. Although the request sets
illustrative ceilings by appropriation accounts within the total, as written, DOD could transfer the
$25 billion for DOD's expenses for Iraq and Afghanistan to any appropriation account and in any
amount after notifying Congress five days in advance. The issue for Congress is to determine how
much flexibility the Defense Department may need to carry out operations Congress intends to
support, while also ensuring that funds are used in amounts and for purposes that Congress has
approved.

Faced with the challenge of balancing DOD's need for flexibility to respond to the uncertainties of military operations with congressional oversight responsibilities, Congress has responded to
similar requests for DOD in different ways in recent years. Before the September 11, 2001, terrorist
attacks, Congress generally balked at proposals to provide blanket authority for the Defense
Department to finance military operations without specific, advance congressional approval. Since
9/11, however, Congress has been more willing to provide the Administration with considerable
flexibility to allocate funds for the "global war on terrorism" without detailed congressional
oversight. Since then, Congress has continued to provide the Administration with funding
flexibility, but it has gradually pared back the amount of funding placed in flexible accounts, and it
has also imposed a variety of reporting requirements. This report

<blockquote>(1) briefly reviews the Administration's request for flexibility in the $25 billion contingent emergency reserve fund that it has requested for
FY2005;</blockquote>

<blockquote>(2) discusses options Congress has to provide flexible funding for military operations based on precedents discussed in more detail later in the
report;</blockquote>

<blockquote>(3) reviews standard peacetime procedures governing reprogramming of defense funds as a benchmark against which to assess flexibility Congress has
often provided for wartime or contingency operations;</blockquote>

<blockquote>(4) reviews congressional responses to Administration requests for funding flexibility from the first Persian Gulf War in 1990 through post-9/11 wartime
appropriations to date; and</blockquote>

Although Congress has provided most of the DOD funding requested by the Administration for the "global war on terrorism," Congress has not provided most of that funding in flexible accounts
despite Administration requests. Of the $173 billion that the Administration has requested for Iraq,
Afghanistan and enhanced security for defense installations since the 9/11 terrorist attacks, the
Administration requested $104 billion in flexible funds and the remaining $69 billion in regular
appropriation accounts. In response, Congress appropriated a total of about $165 billion including
$40 billion in flexible accounts and $124 billion in regular accounts (see Appendix A).

The current request for $25 billion in a flexible account is larger than any amount that DOD has received thus far. Since 1990, DOD has received between $2 billion and $14 billion in monies in
any individual bill that can be moved after enactment for war and war-related funding, with the
remainder of the funding placed in regular appropriation accounts.
(1) In the most recent FY2004
Emergency Supplemental, Congress provided $2 billion in flexible funding requested by DOD, or
about 3% of the total in the bill. (see Appendix A).

Appendix A includes tables comparing the amounts that Congress has provided for military operations since 9/11 in flexible spending accounts and in regular appropriations accounts.
Appendix B provides a list of legislation with flexible accounts.

The discussion below and Table 1 analyze the Administration's request and congressional action on the FY2004 Administration request. Both the authorization and appropriation bills reject
the Administration's request for broad discretion and set allocations for most of the $25 billion
requested, as well as require additional reporting of how funds are spent, with advance notification
of spending of unallocated funds and after-the-fact reporting of funds allocated in appropriation
accounts or titles.

Congress is likely to vote on the conference version of the FY2005 DOD Appropriations bill, H.R. 4613, before going on recess on July 26, 2004 but is not likely to address the
FY2005 DOD Authorization until after the recess. See the section on congressional action below
for an update of provisions on funding and monitoring of the $25 billion for Iraq and Afghanistan
in the conference version of H.R. 4613 and a comparison of the House and Senate version
of the authorization bills.

Proposed FY2005 Budget Amendment

On May 12, 2004, the White House sent Congress an amendment to its FY2005 budget request,
asking Congress to appropriate $25 billion as "contingent emergency funds" in the Iraq Freedom
Fund (IFF), a transfer account that Congress established in the FY2003 Emergency Supplemental,
to be available until expended (see text in next section).
(2) Within the total in the IFF, the
Administration proposed the following illustrative ceilings by appropriation account:

$14 billion for Operation and Maintenance, Army;

$1 billion for Operation and Maintenance, Navy;

$2 billion for Operation and Maintenance, Marine
Corps;

$1 billion for Operation and Maintenance, Air Force;

$2 billion for Operation and Maintenance, Defense-Wide;
and

$5 billion for other appropriations or DOD funds or classified
programs.

After consultation with the Director of the Office of Management and Budget (OMB), however, the Secretary of Defense could transfer funds to other accounts or to classified programs as
long as the
defense authorizing and appropriations committees were notified five days in advance.

If enacted, this language would give the Secretary of Defense complete discretion to transfer $25 billion among appropriation accounts to fund operations in Iraq and Afghanistan, or related
activities. Although the language sets illustrative ceilings by appropriations account within the $25
billion total, the Secretary of Defense could alter those ceilings, with the approval of OMB and five
days after notifying the defense committees. The language also provides that up to $5 billion of
appropriations could be transferred to any appropriation account or classified activity, presumably
including intelligence agencies. The language also permits the Secretary of Defense to transfer any
funds not needed back to the IFF, to be available for subsequent retransfer. There is no time limit
on the availability of the funds.

Once transferred, funds would be available for the same purposes and for the same periods of time as the accounts to which they were transferred, and these transfers would not count against
DOD's overall annual limits on general transfer authority -- standard language for transfer accounts.
The request requires the White House to submit an official budget request to Congress for the funds
and designate the funds as emergency. Other than the five-day notification to congressional defense
committees before transferring funds, no reports to Congress are required either before or after
transfers take place (see below). The Administration does not plan to submit any justification
materials for the $25 billion until that official budget request is submitted. (3)

Language of the Request

The specific language of the request is as follows:

<blockquote> For additional expenses, not otherwise provided for, necessary to support operations in Iraq or Afghanistan, $25,000,000,000, available October 1, 2004,
and to remain available until expended: Provided, That the funds made available under this heading
shall be available only to the extent that an official budget request for all or part of the funds is
transmitted by the President to the Congress and includes designation of the amount of that request
as an emergency and essential to support activities and agencies in Iraq or Afghanistan: Provided
further, That funds made available under this heading, may be available for transfer for the following
activities:</blockquote>

<blockquote>Up to $14,000,000,000 for "Operation and
Maintenance, Army"; </blockquote>

<blockquote>Up to $1,000,000,000 for "Operation and Maintenance,
Navy"; </blockquote>

<blockquote>Up to $2,000,000,000 for "Operation and Maintenance,
Marine Corps";</blockquote>

<blockquote>Up to $1,000,000,000 for "Operation and Maintenance,
Air Force"; </blockquote>

<blockquote>Up to $2,000,000,000 for "Operation and Maintenance,
Defense-Wide;</blockquote>

<blockquote>Up to $5,000,000,000 may be used to reimburse other
appropriations or funds of the Department of Defense and classified
programs:</blockquote>

<blockquote>Provided further, That in addition to the transfers
authorized in the previous proviso, after consultation with the Director of the Office of Management
and Budget, the Secretary of Defense may transfer the funds provided herein to any appropriation
or fund of the Department of Defense or classified programs, to be merged with and available for
the same purposes and for the same time period as the appropriation to which transferred: Provided
further, the Secretary of Defense shall notify the Committees on Appropriations and the Authorizing
Committees five days prior to the transfer of funds made available under the previous proviso:
Provided further, That upon a determination that all or part of the funds transferred from this
appropriation are not necessary for the purposes provided herein, such amounts may be transferred
back to this appropriation: Provided further, That the transfer authority provided under this heading
is in addition to any other transfer authority available to the Department of
Defense. (4)</blockquote>

Congressional Concerns

Before submission of the request, congressional concerns about funding for Iraq and Afghanistan centered on DOD's initial plan to wait until January 2005 to submit a supplemental
request, and rely on peacetime funding to finance or "cash flow" occupation costs for the first six
months of FY2005. During hearings, members have also asked about the full amount of funding
likely to be needed in FY2005.

While submission of the amendment responds to that initial concern, members have continued to ask about the total funding likely to be needed in FY2005. In its transmittal letter, the
Administration states that the contingent emergency reserve fund is requested at a time when "we
do not know the precise costs for operations next year" but that "developments on the ground in Iraq
indicate the need to plan for contingencies..."; the letter also states that "we plan to pursue a full
FY2005 supplemental request when we can better estimate precise costs." (5) In testimony on May 12,
2004, Secretary of Defense Rumsfeld stated because of the recent upsurge in violence in Iraq and
the decision to keep an additional 20,000 troops in Iraq, the Administration decided to submit a
request for $25 billion to ensure "there's no disruption in the resources for the troops." (6)

In a hearing on May 13, 2004 about the request itself, both majority and minority members of the Senate Armed Services Committee voiced considerable concern about the amount of discretion
in the request -- some legislators characterized it as a "blank check." (7) In response to questions from
members, Deputy Director of OMB, Joel Kaplan stated that the intent of the request was to identify
"those areas where we think there'll be the greatest pressure points ... in particular, the Army O&M
[Operation and Maintenance] accounts," but he acknowledged that the language of the request was
also designed "to make sure that commanders and the secretary and the president have the flexibility,
after notification to the Congress, to direct those resources to the needs and the requirements." (8)

In recent months, congressional concern about flexible funding available to DOD for war and occupation-related funding has mounted. Such concerns have grown with allegations of abuses in
large support contracts and a recent allegation by author Bob Woodward that the Administration
spent funds appropriated in 2001 and 2002 for Afghanistan to prepare for the war in Iraq. (9)
Administration spokesman, Deputy Secretary of Defense Wolfowitz, denied the charge, saying that
the funds were "to strengthen our [U.S.] capabilities in the region," rather than strictly to prepare for
a war with Iraq. (10)

Members have also questioned DOD's spending priorities for war and occupation spending because of initial shortages of force protection equipment, particularly body armor for troops and
uparmored Humvees. The Administration has also provided sparse information about the allocation
of spending between Iraq, Afghanistan, and enhanced security for defense installations, as well as
the number of troops deployed and current and future plans. For example, DOD has only provided
the distribution of funding by mission to Congress in the FY2004 Emergency Supplemental request,
and only for FY2004, but not for earlier years or for the current request. (11) Some have expressed
dissatisfaction with the quality and level of detail in DOD reporting on previous flexible funding.
While flexible funding gives DOD a special tool to respond to the uncertainties of operations, it may
reduce the information available to Congress on U.S. plans, actions and options, and hence may
make oversight more difficult.

Congressional Action

Both the House and Senate provide the $25 billion requested by the Administration for operations in Iraq and Afghanistan in the FY2005 DOD authorization bill (H.R. 4200
and S. 2400) and the FY2005 DOD appropriation bills (H.R. 4613 for both
houses, H.Rept. 108-533 and S.Rept. 108-284), passed on June 22 and June 24 respectively.
Appropriations conferees met July 15, 2004, to resolve differences, and a conference report was filed
on July 20 (H.Rept. 108-622). The House and Senate are expected to vote on the FY2005 DOD
Appropriations bill, H.R. 4613, before the recess that begins on July 26, 2004. Table 1
below compares the request with congressional action to date. Congress is not expected to address
the conference version of the FY2005 DOD Authorization until after the recess.

The conference version of the appropriations bill provides most of the funding in regular appropriation account, giving DOD flexibility to allocate about 14% of the $25 billion with funding
levels that reflect a compromise between the House and Senate version (see Table 1). The bill
also
includes more extensive reporting requirements on operations in Iraq and Afghanistan than are
currently in effect.

Authorization Issues. In the authorization bills, the chief differences in their treatment of the $25 billion request are the:

extent of funding flexibility for DOD;

mix of funding provided;

type of reporting requirements; and

military manpower levels.

Funding Flexibility. Although both houses authorize the amount requested, neither provides the Administration with the funding flexibility requested.
Both the House and Senate versions of the FY2005 DOD Authorization Act provide all but $2.5
billion, or 10%, of the funds in individual appropriation accounts or by appropriation title (e.g.
operation and maintenance) (see Table 1). The House authorization bill (H.R. 2400)
distributes all the funds but gives DOD $2.5 billion in general transfer authority, subject to the
standard criteria governing transfers, including prompt notification of transfers. (12) The Senate version
(S. 2400) allocates $2.5 billion for transfers and also requires a five-day advance
notification and consultation with the Chair and ranking members of the four congressional defense
committees before transfers can be made.

The House designates the $25 billion for "emergency contingency operations" for the global war on terrorism, consistent with the House version of the FY2005 budget resolution. (13) In the Senate
version, funding would not be available until the Administration submits a request and designates
the funding as emergency.

The House included its provision for the $25 billion in the reported version of the bill, while
the Senate adopted an amendment proposed by Senators Warner and Stevens. (14)

Funding Mix Differs. Unlike the Administration and the Senate authorizers, the House authorizers provide $3.4 billion for procurement of force
protection equipment, with types of equipment specified in report language (e.g., $1 billion for
uparmored HUMVees and bolt-on equipment for vehicles).
(15) The Senate authorizers instead allocate
higher amounts for operation and maintenance funding and no procurement funding. The
Administration has generally been reluctant to provide reconstitution funding in supplementals,
although DOD has transferred funds provided in the FY2003 and FY2004 supplementals for force
protection items such as body armor and uparmored HUMVees. The House also allocates funds by
appropriation account, except for military personnel, whereas the Senate allocates funds at the more
general title levels and adopts the Administration's funding guidelines (see Table 1).

Reporting Requirements and Funding Limits. The Senate requires more extensive reporting requirements than the House. The Senate requires both
monthly reports on the use of the $25 billion -- by cost, purpose and amount and operation -- and
quarterly reports on all funds expended for Operation Iraqi Freedom, Operation Enduring Freedom
(Afghanistan), and Operation Noble Eagle (enhanced security for defense installation), and any other
operation of the "Global War on Terrorism." (16)
Neither bill requires reporting on past, current, or
future funding by mission or operation (i.e. Iraq vs. Afghanistan), information that has been of
considerable interest to members. Nor do the bills require information on past, current, or future
troop levels, which plays a major factor in driving costs.

Both houses set a funding limit of $300 million and require reporting on the Commanders Emergency Response Fund, a fund where local commanding officers can dispense funds for
community and small reconstruction projects. (17)
Both houses also require reports on contractor
personnel. (18) And both houses provide for
reimbursement for body armor or protective gear within
certain limits. (19)

Post Major-Combat Operations Report. The Senate also requires an extensive report, by March 31, 2005, assessing goals, performance, lessons learned, strategy, and
participation of allies during the post-major combat operations period after May 1, 2003, through
December 31, 2004. (20) The Senate also requires
a report on DOD's prisoner population and
facilities. (21) This reporting requirement is similar
to the "lessons learned" report required after the
first Gulf war (see below).

Funding for Irregular Forces. The House provides additional flexibility in
use of these funds by allowing the Secretary of Defense to spend up to $25 million to support
irregular forces, a controversial previous Administration request that was rejected by Congress. (22)
Both the House and the Senate authorizers refused, however, to give the Administration the authority
it requested to "train and equip" foreign forces for peace enforcement missions. (23) The Senate did
provide up to $150 million to train Iraqi security forces.
(24)

Military Manpower Levels. A chief bone of contention between the Administration and Congress this year has been whether to increase the
number of active-duty personnel in the Army and the Marine Corps on a temporary or a permanent
basis in order to deal with the stresses created by the Iraq and Afghanistan conflicts. By setting
endstrength levels -- which are then funded in the DOD appropriation bill -- the authorization bills
play a key role in this issue. Both authorization bills provide that higher endstrengh levels are funded
in the $25 billion for Iraq and Afghanistan.

Although both authorization bills would increase active-duty endstrength by 10,000 in the Army and and 3,000 in the Marine Corps each year for the next three years, the House bill mandates these
increases (although only through FY2007) and the Senate bill makes them permissive levels.
Although the Administration has waived current ceilings, they oppose mandatory ceilings set by
Congress, arguing that they need the flexibility to adjust levels.

Table 1. Congressional Action on Administration Request for
$25 Billion in FY2005 for Iraq and Afghanistan (in billions of dollars)

b As passed by each house. Both appropriation bills would make the funds available upon
enactment
though the Senate bill requires that the Administration must first submit an official budget
request.

c Funds in Iraqi Freedom Fund (IFF) can be transferred to any account unless a ceiling is set;
House
appropriations bill includes $2.0B in classified programs in IFF so flexible portion would be
$1.0 billion. Senate appropriations bill provides $25.0 billion in the IFF but sets floors for all
but $2.5 billion of the funds; allocations shown in brackets. Within IFF total, appropriations
conference includes $1.8 billion for classified and $100 million for the Coast Guard. In the
House, Senate and conference appropriations bills, DOD must inform the congressional defense
committees of transfers from the IFF five days in advance and report transfers quarterly. Senate
authorization puts $2.5 billion in a transfer account to be allocated by DOD.

d The bills include these categories rather than accounts.

e Senate bill provides that "up to" the amounts shown in brackets would be available so DOD
could
choose to spend.

f Transfer authority sets limit on the amount that DOD can move between accounts within
reprogramming rules.

Appropriation Issues. In the House and Senate versions of the FY2005 appropriation bill (H.R. 4613), the chief issues are

differences in funding priorities;

mechanisms for providing funding flexibility;

extent of reporting requirements; and

funding for Darfur region of Sudan and the new Iraqi
embassy.

Funding Priorities. The conference version funding levels reflect a compromise between the levels in the two houses and lower funding for procurement.
The conference version provides $1.2 billion for military personnel, between the House and Senate
proposals and close to the Senate's amount for O&M. The conference version also provides less
funding for procurement, primarily for Other procurement, Army, where force protection equipment
such as uparmored HUMVees is funded.

The House version provided more funding for military personnel ($3.9 billion) than the Senate ($.5 billion). This reflects primarily funding the current higher special pays for personnel in combat
and the House authorization bill requirement that the Army increase military endstrength by 10,000
in FY2005. (25) The House appropriators provide
funds in specific military personnel accounts to
cover costs for the first quarter of the year.

The Senate version provided $4 billion more in funding for operation and maintenance activities (see Table 1). Both appropriation bills provide additional funding for body armor for
troops in the Army's O&M accounts (e.g. $334 million in the House and $295 million in the Senate)
and over $2 billion for procurement, much of it for force protection items (e.g., over $850 million
for new vehicles or kits to uparmor HUMVees). (26)

Funding Flexibility. Of the $25 billion total, the conference version provides $3.4 billion or 14% in flexible funding. That $3.4 billion total includes
$1.9 billion of unallocated funding in the Iraqi Freedom Fund (the IFF also includes $1.8 billion for
classified programs and $100 million for the Coast Guard) and $1.5 billion in transfer authority.

Both the House and the Senate appropriation bills provided about the same level of flexibility as the authorization bills, between $2 billion and $3 billion. The House version includes $2 billion
in the Iraq Freedom Fund (IFF) Committee but specifies that $2.0 billion is for intelligence activities,
leaving $1.0 billion for DOD to allocate. To provide additional flexibility, the House appropriators
include $2.0 billion in transfer authority for the $25 billion in war-related funding, subject to
standard reprogramming rules. The Senate appropriators would give DOD $2.5 billion in the Iraqi
Freedom Fund to be allocated at DOD's discretion, but no additional transfer authority.

To ensure that the Army has sufficient funds available to finance its operations in FY2004 -- a current concern -- the conference version (reflecting both houses) makes the $25 billion available
upon enactment. (27) The conference version
dropped the requirement in the Senate bill that the
Administration submit an official request. Like both houses, the conference bill also designates the
funds as emergency but no longer requires an emergency designation from the executive branch. (28)

There is an ongoing debate about the size of the Army's shortfall in funds to finance its operations in Iraq in FY2004. DOD contends that sufficient funds will be available. (29), CRS
estimated that the shortfall in operations and maintenance (O&M) funding would range from $5.3
billion to $7.1 billion but that DOD could tap about $7.0 billion in lower-than-anticipated costs
elsewhere to finance the shortfall. (30) Based on
forecasts by the services, a new GAO report estimates
that the Army will face an O&M shortfall of $10.2 billion, with the other services reporting shortfalls
of about $3.0 billion more. To meet these shortfalls, GAO reports that the Army and the other
services plan to transfer funds from other accounts with surpluses and defer some activities (like
depot maintenance) to the following fiscal year. (31)
To accommodate these shifts in funding, the
conference version of the FY2005 DOD appropriation bill (H.R. 4613) increases DOD's
general transfer authority from $2.1 billion to $2.8 billion.
(32)

Reporting Requirements. The conference version of H.R. 4613 provides most of the funding in regular appropriations bills and $2.0 billion
in the Iraq Freedom Fund, which would be subject to the five-day advance notification and quarterly
reporting that was included in both the House and Senate version of the bill. The conference version
did not adopt the Senate approach where all funds were appropriated to the IFF with floors by
appropriation account. Under that approach, all transfers would have been under the reporting
requirement (see Table 1). Extending the availability of funds beyond one year also gives DOD
additional flexibility. All funds, except for procurement funds and IFF funds, are available for one
year in the conference version rather than one year in the House bill and two years in the Senate
bill. (33)

The conference bill adopted the extensive report to the Congress as a whole on military operations and reconstruction activities in Iraq that was required in the House bill. Required by
April 30 and October 31, DOD is required to report on amounts expended for Iraq and Afghanistan,
progress in preventing attacks on U.S. personnel, effects on readiness, recruitment, retention, and
equipment, on reserve forces. The report on treatment of prisoners in Iraq included by the House
was dropped in conference. (34) The conference
version did retain the House provison (reflecting
adoption of the Obey amendment on the floor) that the Administration provide estimates of costs for
military operations and reconstruction for Iraqi and Afghanistan operations, reconstruction, and
economic support for the period FY2006 to FY2011 unless the President certifies that the estimates
cannot be provided because of national security. (35)

The conference version also adopts the limits and reporting on the Commanders Emergency
Response Fund ($300 million), assistance to the Iraqi and Afghan armies ($250 million), Afghan
Freedom Support Fund ($550 million), and quarterly reports on amounts spent on coalition support
(no dollar limit) for countries aiding the U.S. in combating terrorism included by both houses. The
conference also provides up to $500 million in funds to "train and equip" only the Iraqi Army and
the Afghan National Army, with a 15-day advance notification, a modification of the House version
that could be used for any Iraqi or Afghan military or security forces. (36)

Funding for Embassy Operations and Darfur, Sudan. Like the House and Senate appropriation bills, the conference bill also provides $70 million for
disaster assistance and $25 million for refugee assistance for Darfur, Sudan, to be transferred to the
State Department, and like the Senate bill, $665 million for embassy operations and $20 million for
construction. All of these funds are designated as emergency funding, and hence, are not subject to
budget resolution limits. (37)

The conference bill also includes $100 million for wildfire management and $400 million for suppression. (38)

Flexible Funding: Options for Congress

Since 1990, Congress has periodically given DOD discretion to allocate appropriated funds
after enactment by placing funds in flexible transfer accounts, with the remaining funding provided
in regular appropriations accounts. For flexible transfer accounts, Congress has sometimes required
advance notification for transfers ranging from 5 days to 15 days. For funding in regular accounts,
Congress generally requires that DOD follow standard reprogramming practices under which DOD
must receive prior approval for transfers above specified thresholds.

Based on precedents since 1990, and going from least restrictive to most restrictive, Congress could apply the following options to the FY2005 $25 billion budget amendment for Iraq that is
currently under consideration.

Option 1: Provide Extensive Flexibility as After 9/11. This option parallels the provisions governing the initial $20 billion provided
in the Emergency Terrorism Response Supplemental passed on September 18, 2001, in the
immediate aftermath of the terrorist attacks (P.L. 107-38). That measure required only that the
President consult with the chairmen and ranking minority members of the appropriations committees
before transferring funds, that $10 billion of the amount could not be transferred until 15 days after
notifying the appropriations committees, and that the Office of Management and Budget (OMB)
report on funding allocations quarterly to the appropriations committees.

Option 2: Split Funding Between a Transfer Account and Regular
Appropriations with Brief Notification Period. This approach was followed, with
some variations, in the FY2003 Iraq Emergency Supplemental (P.L. 108-11), and in the main
appropriation of supplemental funding for the first Gulf War (P.L. 102-28). Both measures provided
funding in regular appropriations accounts for those expenses that could be predicted, but provided
relatively large amounts ($10.0 billion to $11.0 billion in the FY2003 supplemental and $8 billion
in the FY1991 Desert Storm supplemental) in a flexible transfer account for less predictable
expenses. Both also required 5- or 7-day advance notification to the congressional defense
committees for transfers from the flexible account and quarterly after-the-fact reporting to the four
defense committees.

Option 3: Put Most Funds in Regular Accounts with Longer Notification and More Extensive Reporting. This approach parallels some features
of the Persian Gulf Conflict Supplemental Authorization and Personnel Benefits Act of FY1991
(P.L. 102-25) and the FY2004 Emergency Supplemental (P.L. 108-106). The FY2004 supplemental
provided just $2 billion of the $65 billion for the Defense Department in a flexible transfer account
with the remainder in regular appropriations accounts. Both measures on the first Persian Gulf war
required extensive reports on strategy, force levels, time lines, and monthly reporting on transfers
and allied contributions. Recent supplementals have required quarterly reporting to the four
congressional defense committees.

Option 4: Provide All Funds in Regular Accounts with Some
Flexibility, Longer Notification, and Require Planning Assumptions. Congress
could provide additional general transfer authority and could create special higher reprogramming
thresholds that would allow DOD to make changes to funding after enactment more easily. Funding
categories could reflect current reporting on the costs of Iraq, Afghanistan and enhanced security for
defense installations (Operation Noble Eagle). This also reflects some features of the FY2004
Emergency Supplemental (P.L. 108-106), which provided most funds in regular appropriations
accounts and provided $3 billion in general transfer authority. Legislative measures for the first Gulf
war and recent legislation on contingencies required that DOD provide its planning assumptions.
Reporting could be provided to the Congress as a whole.

Option 5: Provide All Funds in Regular Accounts with Some
Flexibility, Require Longer Notification, Planning Assumptions and Extensive
Reporting. Under this approach, standard peacetime reprogramming restrictions
would apply, and DOD would have to submit extensive, monthly reports on the cost and planning
assumptions underlying costs in categories similar to current reporting on contingency and war costs,
and provide 15-day advance notice of transfers to Congress as a whole.

Table 2 below summarizes flexible funding, notification, and reporting requirements enacted by Congress for war, war-related, and contingency operations since 1990, and standard
reprogramming rules, all of which serve as the basis for the options above.

Admin. requests
increase in 1996
general transfer
authority from $2.4B
to $3.1B.

Section 2701 in
General Provisions
section

Raises gen'l transfer
authority in FY1996
DOD approps from
$2.4B to $3.1B "only
to the extent funds are
transferred ... to cover
costs associated with
United States military
operation in support of
the NATO-led Peace
Implementation Force
(IFOR) in and around
the former
Yugoslavia."

Funding Flexibility In Regular Appropriations and Transfer Accounts

In providing flexibility for war and war-related spending, current restrictions
applying to regular peacetime DOD spending may serve as a baseline. For most
funds that are provided in regular appropriation bills, DOD can move monies after
enactment but only within the bounds of restrictions that are established partly by
statute, partly by language in congressional reports on annual defense funding bills,
and partly by understandings with congressional defense committees that are
reflected in Department of Defense financial management regulations.

In general, DOD must get prior approval from the congressional defense committees to move funds between accounts, and, for certain purposes and above
certain threshold amounts, to change funding levels within appropriations accounts.
For other changes to funding levels within accounts, DOD issues internal
reprogramming reports.

Standard Statutory Restrictions on Moving Funds After Enactment

Congress provides most of DOD's annual funding in regular appropriation accounts, which cover fairly broad categories of expenses. Appropriations accounts
include "Military Personnel, Army," "Operation and Maintenance, Navy," "Aircraft
Procurement, Air Force," "Research, Development, Test, and Evaluation,
Defense-Wide." The language of annual congressional appropriations acts specifies
the amount available within each account, typically in the billions of dollars.

After enactment, DOD is permitted to move funds between appropriation accounts or between specific programs within accounts in a process referred to as the
"transfer" or "reprogramming" of funds. In most government agencies, the term
"transfer" refers to shifts of funds between appropriations accounts, while
"reprogramming" refers to shifts of funds within accounts. The Defense Department,
however, uses the term "reprogramming" to refer to both kinds of activities.

As a matter of law, transfers between accounts are subject to strict limits. Each year, in annual appropriations acts, Congress provides a specific amount of "general
transfer authority" which sets limits the amounts that may be transferred between
accounts. Section 8005 of the FY2004 Department of Defense Appropriations Act
(P.L. 108-87), for example, sets an overall limit of $2.1 billion on DOD's general
transfer authority, requires prompt notification for transfers, requires that any transfer
be "necessary in the national interest," and specifies that

<blockquote>"such authority to transfer may not be used unless for higher priority items, based on unforeseen military requirements, than
those for which originally appropriated and in no case where the item for which funds
are requested has been denied by the Congress."
(39)</blockquote>

Standard Reprogramming Restrictions

In addition to limits established by statute, Congress has imposed other restrictions on DOD's authority to change the funding levels that are specified in
appropriation acts or in report language. (40) Though
it is not stated in statutory
language, Congress requires that the Defense Department receive prior approval from
the four congressional defense committees for reprogramming of funds that would
(1) move funds between appropriation accounts (i.e., amounts subject to overall
general transfer authority limit), (2) start or end programs, or (3) change funding
levels above certain congressionally established threshold amounts.

Reprogramming Thresholds. In addition to approving all transfers of funds between appropriation accounts, the
congressional defense committees must approve all changes in funding above certain
threshold amounts, which vary by appropriation account. The thresholds are:

DOD must also get prior approval for changes in any programs that are designated as "congressional interest items" by any one of the four congressional
defense committees. (42) Increases to a program
Congress has cut or decreases to a
program Congress has increased require advance congressional approval. For
changes in funding below the thresholds and for programs that are not congressional
interest items, DOD issues internal reprogramming reports.
(43)

It is important to note that the definition of a "program" or "budget activity" subject to the thresholds varies between accounts. For procurement and RDT&E
programs, reprogramming limits are fairly restrictive because the thresholds apply to
individual "line items" or "program elements" that are defined very narrowly both
in Department of Defense budget justification material and in congressional
committee reports. The thresholds for both military personnel and O&M "budget
activities," in contrast, apply to broad budget groupings in the billions of dollars that
encompass many activities, giving the services considerable flexibility.

Effect of Thresholds on O&M Activities. In Operation and Maintenance (O&M), for example, the
$15 million O&M threshold applies to four budget activities within each service,
each of which includes billions of dollars:

Within these limits, the services have discretion to move funds between Activity Groups (AGs) and Subactivity Groups (SAGs) such as Air Force flying hours and
base operations support for military installations.

Because of concerns that DOD has sometimes moved funds out of readiness-related activities, such as combat training for Army units, Congress has
recently required DOD to provide written notification of changes in funding to
certain "sub activity groups" (SAGs) within budget activities for O&M, such as
Primary combat forces, Air Force; or Aircraft depot maintenance, Navy. (45) Prior
approval of changes is not required, however, except at the broader budget activity
level.

Alternative Thresholds for War-Related Reprogramming

In order to give DOD greater flexibility to adjust appropriations in response to changing circumstances, Congress could choose to establish new reprogramming
rules specifically for war and war-related spending. For example, the criteria for
war-related spending could require that funding must be directly related to combat
or occupation costs, be limited to incremental costs, and identify and take into
account savings in peacetime operations. These criteria are similar to the those that
apply to contingency costs funded in the Overseas Contingency Operations Transfer
Account (OCOTF), and that are covered in DOD's financial regulations governing
contingency costing. (46)

Congress could also adopt special thresholds for war and occupation-related expenses that could be applied to DOD's current categories for reporting those costs.
DOD currently reports war and contingency costs monthly in categories such as
personnel, personnel support, operating support, and transportation, which are further
divided into type of personnel (active, reserve, civilians), type of support (personnel
vs. equipment), and type of transportation (air, sea, other).
(47) In addition, Congress
could require that DOD provide its current planning assumptions and then require
that DOD report changes to its underlying planning assumptions. This would provide
a mechanism that could aid congressional oversight of ongoing operations.

Important planning assumptions that underlie cost estimates include current and anticipated manpower levels, mix of active-duty and reserve forces, planned rotations
of personnel, and anticipated operating tempo. DOD currently has a model, the
Contingency Operations Support Tool, that uses such assumptions to estimate
operational costs, but DOD has been unwilling to provide Congress with access to
this model or information about its assumptions. The Congressional Budget Office
(CBO) has been provided access to similar models in the past.
(48)

Flexible Transfer Accounts

To provide the Defense Department with greater flexibility in carrying out peacetime activities for which costs are likely to fluctuate after funds have been
appropriated, Congress has set up transfer accounts into which funding is
appropriated for subsequent transfer to regular appropriations accounts for execution.
In annual defense appropriations bills, for example, funds for drug interdiction and
for environmental restoration are normally provided in transfer accounts. The
FY2004 Department of Defense Appropriations Act, for example, provides $396
million for the Army's environmental restoration programs that can be transferred to
other accounts

<blockquote>Provided, That the Secretary of the Army shall, upon determining that such funds are required for environmental
restoration, reduction and recycling of hazardous waste, removal of unsafe buildings
and debris of the Department of the Army, or for similar purposes, transfer the funds
made available by this appropriation.</blockquote>

Some transfer accounts, like the Foreign Currency Fluctuation Account, set up to allow the services to respond to shifts in exchange rates, are noncontroversial.
Others, like the Overseas Contingency Operations Transfer Fund (OCOTF),
established in the mid-1990s to centralize funding in regular appropriations bills for
contingency operations in Bosnia, Kosovo, and Southwest Asia, and the Defense
Emergency Response Fund (DERF), set up originally to financing overseas disaster
cleanup activities but used as a vehicle for DOD's emergency funding after
September 11, have proved to be more problematic.
(49)

While transfer accounts have the advantage that DOD can respond to unanticipated changes in circumstances, they may have the disadvantage that
Congress may be unaware of, or disapprove of, particular uses of the funds provided
in the accounts. For example, controversy recently erupted when investigative
reporter Bob Woodward alleged that DOD used funds provided in the first post 9/11
Emergency Terrorism Response Supplemental for projects that were intended to
prepare for a future war with Iraq, an allegation denied by the Administration. (50)

Earlier in 2001, controversy developed about the Overseas Contingency Operations Fund (OCOTF), a flexible transfer account used to fund contingencies,
when GAO found that some of those funds had been used for expenses that were not
truly incremental costs, or not related to contingency operations such as purchases
of cappuccino machines, golf memberships, and decorator furniture. (51)

After the 9/11 attacks, Congress again turned to flexible accounts to give DOD discretion to move funds after enactment to fund combat operations in Afghanistan.
In later supplementals, Congress split funding between flexible accounts and regular
appropriations, a practice that was also adopted in funding for the first Gulf War.

Precedents for Flexible Funding Since 1990

Since 1990, Congress has provided DOD with substantial amounts of flexible
funding -- ranging from $2 billion most recently to $14 billion in the first post 9/11
supplemental -- using various special accounts, and has used a variety of tools for
oversight of those funds, including prior notification of transfers ranging from 5 days
to 15 days and various after-the-fact reporting in varying levels of detail. Typically,
Administrations have requested broad discretion, which Congress has rejected even
in the midst of combat operations as was the case during the first Persian Gulf War.

First Persian Gulf War: Flexibility for Combat Operations But with Extensive Reporting

In 1990 and 1991, in the midst of the initial deployment of forces for the first Gulf War and during combat operations, the Administration submitted two requests
that would allow the Defense Department full freedom to allocate funds contributed
by allies for Operation Desert Shield/Desert Storm. Congress rejected both
Administration requests.

Creation of the Defense Cooperation Account. On September 17, 1990, six weeks after Iraq's invasion
of Kuwait and the dispatch of some 50,000 U.S. forces to Saudi Arabia to prevent an
invasion of that country, the first Bush Administration submitted a request for
supplemental appropriations of $2.1 billion to cover FY1990 costs of Operation
Desert Shield. (52) At that point, the Administration
requested the funding in regular
defense appropriation accounts despite the uncertainties in costs.

Relying on the analogy that contributions by allies were like gifts received by the government, however, the Administration also requested that Congress establish
a trust fund in the Treasury to be known as the "National Defense Gift Fund," into
which monetary contributions from allies or others would be deposited.

Under this proposal, the Secretary of Defense, with the approval of the Office of Management and Budget, would have authority to transfer any amounts received
by the fund to the regular operating accounts of the Department of Defense without
further congressional action. In effect, the Administration requested that the
Secretary of Defense be given general authority to allocate all amounts received in
either money or properties from allies without further specific appropriations action
from the Congress.

Congress did not agree, however. At the end of September 1990, Congress provided $2.1 billion in supplemental appropriations for Operation Desert Shield and
related expenses in H.J.Res. 655 (P.L. 101-403), a measure providing
continuing appropriations for FY1991. It appropriated the funds in regular defense
accounts. Moreover, Congress explicitly refused to provide general authority to the
Secretary of Defense to allocate funds received from allies. Instead, P.L. 101-403
established the "Defense Cooperation Account" in the Treasury to receive
contributions from allied nations or from individuals, but it also provided that
transfers from the account could be made only as provided in subsequent
appropriations acts. Only two weeks later in mid-October, 1990, the U.S. would
have 200,000 troops deployed in the Persian Gulf.
(53)

Creation of the Persian Gulf Working Capital Fund. Later, on February 25, 1991, when the air war was complete
and the ground phase had just begun, the Administration submitted its second
supplemental appropriations request to cover the incremental costs of operations in
and around the Persian Gulf, and it again asked for broad authority for the Secretary
of Defense to allocate funds for costs of the war.

As a hedge to provide funds if allied contributions were not available, the Administration requested that Congress establish another new account, to be called
the "Desert Shield Working Capital Account," with $15 billion in appropriated funds,
on which the Secretary of Defense could draw, with the approval of the Office of
Management and Budget, to cover war costs. Funds were to be transferred from that
account to regular appropriation accounts, and the initial appropriation was to be
"replenished" from previous and future contributions from allies deposited in the
Defense Cooperation Account. In early September 1990, the Saudis had agreed to
help defray the cost of Operation Desert Shield. (54)

In this request, DOD provided extensive justification materials to underpin requested funding levels, including planning assumptions for manpower levels for
active and reserves, operating tempo rates, transportation, and support costs, as well
as projections of contributions from allies. (55)
These justification materials -- totaling
96 pages -- are far more detailed and extensive than those provided for any of the
supplementals after 9/11.

Enacted April 6, 1991, the Persian Gulf Conflict Supplemental Authorization and Personnel Benefits Act of 1991 set up a Persian Gulf Conflict Working Capital
Fund with $15 billion to act as a "bridge loan" until allied contributions became
available. Senate report language called on DOD to provide Congress with
seven-day advance notifications of transfers, to certify that amounts were incremental
costs, to list amounts and accounts for transfers, and to describe transfers at the
program, project and activity level. (56) The House
report required that reporting of
transfers follow regular reprogramming procedures including congressional
approval. (57) A conference report was not issued.

DOD was also required to provide extensive monthly reports on both
incremental war costs and allied contributions using a set of cost categories that were
defined in statute, and that have since become the basis for current reporting of
contingency and war and war-related costs. The legislation required that DOD
distinguish between recurring and non-recurring costs, and report costs in functional
categories including personnel, personnel support, transportation, and operating
tempo. (58)

Appropriators Require That Funds Be Allocated to Regular Accounts. Signed into law on April 10, 1991, about six
weeks after the conclusion of the war, the FY1991 Operation Desert Shield/Desert
Storm Appropriations Act (P.L. 102-28) rejected the Administration's request for
broad funding flexibility, and set up Persian Gulf Regional Defense Fund with $15
billion in appropriated funds. At the same time, however, Congress required that
those funds could be used only if allied contributions -- to be transferred from the
Defense Cooperation Account -- were not adequate, and only in amounts specified
by appropriation account in the act. (59) The act
allocated a total of $34.6 billion by
account. In effect, Congress insisted on appropriating funds in the regular manner
for specific, established defense operating accounts for most of the funds, though
there was one exception.

Special Flexibility For Combat Operations. To give DOD some flexibility, Congress provided $6.0
billion for operation and maintenance and $1.9 billion for procurement "to finance
the estimated partial costs of combat and other related costs of Operation Desert
Shield/Desert Storm," with a requirement that the Secretary of Defense could not
transfer these funds until seven days after informing the congressional defense
committees. (60) Although Congress appropriated
these funds by title (O&M and
Procurement) rather than at the appropriation account level, the amount was based
on DOD information about potential combat operations plans.

At the time Congress acted on the FY1991 supplemental, DOD had estimated "baseline" costs for the deployment of forces to the Gulf, but had not fully identified
combat costs. In its request, DOD presented a range of estimates for combat
including a daily rate that would vary depending on the scenario.
(61) In their respective
reports, the House and Senate used these estimates to recommend the amount to be
included in the combat cost fund. (62)

As it turned out, combat and some other funding requirements subsequently changed and Congress responded in the 1992 supplemental appropriations bill (P.L.
102-229) by giving DOD discretion to move about 20% of the funds appropriated in
the previous supplemental into different accounts, including about $2.9 billion from
the Persian Gulf Regional Defense Fund and $6.6 billion in previously transferred
funds from the FY1991 Desert Storm Supplemental Appropriations Act.

Providing Flexibility for Unanticipated Contingencies in the 1990s

At the end of FY1994, the United States unexpectedly deployed forces simultaneously to Haiti and Southwest Asia, financed by funds that had been slated
for peacetime training and equipment maintenance. To meet immediate needs, the
Administration obligated $126 million under the Feed and Forage Act (41 U.S.C.
11), an emergency authority which allows the Defense Department to obligate funds
in excess of available appropriations for certain operational purposes, and ultimately
drew several hundred million in funds from the services' peacetime operating
accounts. (63) As a result, several operational units
reported reduced levels of readiness
at the end of the fiscal year.

"Readiness Preservation Authority" Proposal Is Rejected. In reaction to this experience, the Clinton Administration
requested, in a FY1995 supplemental submitted along with its FY1996 budget, that
the Secretary of Defense be given authority to obligate substantial funds for certain
readiness-related military activities in advance of congressional appropriations,
which the Administration called a "Readiness Preservation Authority." (64) Under this
proposal, if the Secretary of Defense, determines it is in the "national interest," he
could, with the approval of OMB, incur obligations 50% "in excess of" the total
amount appropriated for Operating Forces in Operation and Maintenance accounts
(O&M) to fund certain "essential readiness functions and activities of the Armed
Forces" in the second half of the fiscal year. These additional obligations were to
be offset by rescissions "unless the President determines that emergency conditions
exist." (65)

So if the Readiness Preservation Authority were in effect now, the Defense Department would have authority to obligate half of the $75 billion provided for
operating accounts, or $37.5 billion, in the second half of FY2005, for
readiness-related military activities without specific congressional approval. The
funding could cover the cost of operational training of all kinds, weapons repair and
maintenance, and operation of facilities that support operational forces, which
together make up about half of DOD's O&M funding.
(66) Unless the President
determined that there was an emergency, however, the Administration would have
to propose offsetting rescissions to other programs.

In 1995, Secretary of Defense William Perry and Undersecretary of Defense (Comptroller) John Hamre testified in support of the Readiness Preservation
Authority in congressional hearings. But neither the Armed Services Committees nor
the Appropriations Committees took any action on the proposal.
(67)

Congress Adopts the Overseas Contingency Operations Transfer Fund. Although Congress was unsympathetic
to DOD's request for broad authority to increase O&M spending above the levels
appropriated, concerns re-surfaced the following year. As an interim measure,
Congress agreed to DOD's request to raise its general transfer authority from $2.4
billion to $3.1 billion to "cover costs associated with United States military
operations in support of the NATO-led Peace Implementation Force (FOR) in and
around former Yugoslavia." (68)

The following year, Congress provided a more permanent solution by setting up the Overseas Contingency Operations Transfer Fund (OCOTF), to be drawn upon by
DOD to fund contingency operations. Between FY1997 and FY2001, Congress
appropriated from $1 billion to $5 billion annually to the OCOTF to cover the costs
of operations Bosnia and Southwest Asia (including Northern Watch and Southern
Watch in Iraq).

For OCOTF funding provided in regular appropriations, the Secretary of Defense could transfer funds to operations at his discretion; for funds provided in
supplementals, both Congress and the Administration also had to designate the funds
as an emergency. (69) Congress also initially limited
transfers to military personnel and
operations and maintenance accounts, which fund operation al expenses.

In FY2000, Congress added the requirement that OCOTF funds be spent strictly on contingency operations, and required that DOD submit specific justification
materials for all contingency operations, including extensive reporting on manpower
levels for active and reserve forces, costs by type of expense, and weapon systems
deployed. (70) DOD incorporated these reporting
categories in its Contingency
Operations Support Tool (COST) model, and established reporting mechanisms to
capture the costs of individual contingencies. Both these categories and the reporting
mechanisms are currently used in reporting on the cost of Iraq, Afghanistan, and
other contingencies.

Over several years, Congress gradually became disenchanted with the OCOTF, in part because GAO reports found consistent overestimates in costs. The final blow
came in 2001, when GAO found that some of those funds had been used for
expenses that were regular expenses rather than incremental costs, or were not related
to contingency operations, such as purchases of cappuccino machines, golf
memberships, and decorator furniture. (71) In
reaction, Congress cut funding for the
OCOTF in FY2002 to from $3.9 billion to $5 million, and transferred funding for
Balkan operations and Southwest Asia to regular appropriation accounts. (72)

Flexible Funding After September 11, 2001

After the terrorist attacks of September 11, 2001, Congress provided the Administration with broad authority to provide funds for disaster assistance, local
preparedness, countering terrorism, improving airport security, repairing damage and
supporting national security. In the next three emergency supplementals that
provided funds for the occupation of Iraq and Afghanistan and enhanced security for
defense installations (known as Operation Noble Eagle), Congress continued to use
flexible transfer accounts but gradually reduced the amount of flexible funding and
increased restrictions.

FY2001 Emergency Terrorism Response Supplemental Gives President Broad Discretion. On September 12,
2001, the Administration formally requested that Congress immediately appropriate
$20 billion to respond to the previous day's terrorist attacks. As requested, the
President would have had complete discretion to allocate the funds to federal
agencies to provide assistance to victims, fund the cost of preparedness, support
efforts to counter terrorism, increase transit security, repair facilities, and "support
national security." (73) This request is similar to the
discretion requested in the current
FY2005 budget amendment.

Congress took swift action on the Administration's request by providing $40 billion in emergency supplemental appropriations on September 14th, two days after
the Administration's request and four days after the attacks. The President signed the
act into law (P.L. 107-38) on September 18, 2001, six days after the attacks.

In this first emergency supplemental, Congress gave the Administration unprecedented discretion to allocate $20 billion in funds to any federal agency in
response to the terrorist attacks. At the same time, however, Congress provided
double the amount of funding requested and required that the allocation of the second
$20 billion be included in a subsequent appropriations act, thus re-asserting
congressional prerogatives.

The first $20 billion in funding was initially placed in a government-wide Emergency Response Fund, to be transferred later to individual agencies. All
transfers from that fund were subject to four general requirements:

that "the President shall consult with the chairmen and ranking minority members of the Committees on Appropriations prior to the transfer of these
funds";

that the funds may be transferred only for specified purposes,
including "supporting national security,"

that not less than half of the $40 billion shall be for "disaster
recovery activities and assistance related to the terrorist acts in New York, Virginia,
and Pennsylvania on September 11, 2001"; and

that the Office of Management and Budget provide quarterly
reports to the Appropriations Committees on use of the
funds. (74)

Under P.L. 107-38, the President had discretion to transfer $10 billion of that total immediately to any federal agency, and to transfer a second $10 billion to any
federal agency 15 days after OMB submitted a proposed allocation of the funds and
a plan for use of the funds by each agency to the appropriations committees. The
remaining $20 billion, however, was available only after the President submitted an
additional supplemental appropriations request for the funds, and Congress passed,
and the President signed, a subsequent appropriations bill.

At the time, there was considerable debate about whether the 50% floor for recovery and assistance activities was met. More recently, some members have
raised questions about whether the requirement for consultation was met. (75)

Of the $20 billion to be allocated at the President's discretion, DOD received $14.0 billion with most of the funds dedicated to upgrading intelligence systems and
prosecuting the war in Afghanistan. These funds were deposited into the Defense
Emergency Response Fund (DERF), a fund originally set up for unanticipated DOD
assistance provided during disasters. (76)

Some Appropriation Controls Apply To Second $20 Billion. In the supplemental attached to the regular FY2002
defense appropriations bill, P.L. 107-117, Congress appropriated the remaining $20
billion to various federal agencies. Of that total, DOD received $3.5 billion that was
appropriated to the Defense Emergency Response Fund (DERF) in amounts specified
using a unique set of 10 major functional categories developed by DOD in the
aftermath of the attack rather than regular appropriation accounts. These categories
included, for example, "increased worldwide posture," which funded combat
operations in Afghanistan, and "Increased Situational Awareness" for intelligence
and reconnaissance activities. (77)

Within these functional categories, Congress set specific program amounts in the conference report and designated those funding allocations as congressional
interest items, "for purposes of complying with established procedures regarding
transfers and proposed reprogramming of funds." (78)
In other words, DOD would need
to get prior approval for any transfers of funds that differed from amounts specified
in the report. But because DOD chose to spend funds directly out of the DERF
account, this provision did not have any effect. (79)

After-the-Fact Reporting Requirements.P.L. 107-38 required that OMB provide quarterly
reports to the appropriations committees on the use of the $40 billion in funds
originally appropriated. For DOD, OMB's quarterly reports only included the total
funds obligated under each of the ten categories with no details on specific purposes,
projects, activities, or appropriation accounts. (80)

In order to improve visibility over all spending under P.L. 107-38, Congress also required in the conference report that within 45 days of enactment and quarterly
thereafter, DOD provide the appropriations committees with a

<blockquote>"revised, comprehensive and detailed report, using the guidelines in the House report, regarding the overall allocation of
all appropriations for defense and intelligence activities (including obligations up to
that point, and forecasted expenditures) made available from Public Law
107-38." (81)</blockquote>

For the $3.5 billion appropriated to the DERF from the second $20 billion, Congress required in statutory language that DOD provide Congress with a report
"specifying the projects and accounts to which funds provided in this chapter are to
be transferred," suggesting that Congress assumed that the DERF would operate as
a transfer account.

The House report also stated that all funding provided under P.L. 107-38 was to be "subject to traditional reprogramming procedures," with DOD required to
submit an allocation plan for previous funding, and later a Base for Reprogramming"
to be used as the baseline for any later transfers. (82)
Based on that assumption, the
House report also required that DOD provide quarterly reports with an allocation
plan for both the $14.0 billion provided to DOD from the first $20 billion and the
$3.5 billion provided in the FY2002 DOD Appropriation Act, including details
typical for reprogramming reports, such as:

funds available;

funds transferred by appropriation
account;

amounts obligated and expended;

amounts for O&M and military personnel using categories for
ongoing contingency operation since Bosnia and Kosovo.

In addition, DOD was to "identify savings dues to cancellation or downsizing or normal peacetime education, training, professional development, or other activities
due to individual and unit activations or deployments in the war on terrorism." (83)
Again, although DOD provided periodic reporting, DOD did not submit any prior
approval reprogramming requests because no funds were transferred between DOD
accounts.

Congressional Dissatisfaction with DOD Reporting. Although DOD did give periodic briefings to the
appropriations committees, using the ten broad functional categories adopted
immediately after the terrorist attacks, considerable dissatisfaction was voiced about
the quality of DOD's reporting. In the House report issued in November 2001, two
months after the terrorist attacks, DOD reporting was characterized as "at best,
intermittent and scattershot," and both the House report and the conference report
called on DOD to return to reliance on traditional appropriation accounts in future
requests and provide "similarly configured, detailed supporting materials," in order
to ensure proper program review, fiscal discipline and controls, and oversight by both
the executive and legislative branches." (84)

Although DOD's decision to spend funds directly from the DERF and use ten new functional categories was an untraditional approach, it may have also given
DOD more visibility on war and war-related funds than is the case when DOD uses
traditional appropriation accounts. In that traditional approach, the services
sometimes have difficulty in segregating peacetime from wartime costs, making it all
the more difficult to see trends in either peacetime or wartime costs over time.

Assessing DOD spending for war and occupation-related spending has also become problematic, not only because of inconsistent reporting categories, but also
because DOD has not provided information on the its planning factors for this
spending -- for example, operating tempo measures such as tank miles or flying
hours, how frequently forces will be rotated, or active and reserve manpower levels
for forces in-country and those providing support to Iraq, Afghanistan, and enhanced
security for defense installations. (85)

FY2002 Emergency Supplemental: Considerable Flexibility But In A Transfer Account. In the FY2002 Emergency
Supplemental, DOD requested that Congress provide $11.3 billion of the $13.4
billion total for DOD in the Defense Emergency Response Fund (DERF) because of
the "dynamic nature of these [Afghanistan] operations," and because "the global war
on terrorism will be variable and dynamic and, as the President has said, will more
than likely go on for years." (86) By the time
Congress considered the supplemental in
the spring and summer of 2002, the Taliban regime in Afghanistan had fallen several
months earlier, but combat operations were underway to eliminate small groups of
Al Qaeda and Taliban fighters (P.L. 107-206). (87)

Congress agreed, nonetheless, to provide $11.3 billion in the DERF but required that the DERF operate as a transfer account so that funds would be transferred to
regular appropriation accounts and under the control of the services rather than being
spent directly from the DERF. Congress also required that DOD report quarterly on
transfers from the DERF. Congress was also to be notified in advance -- no
specified number of days -- if DOD planned to spend the funds in ways that differed
from allocations in conference report language. (88)

Like the proposed FY2005 budget amendment, as enacted, the FY2002 Emergency Supplemental included "contingent emergency funding." For funding to
be exempt from caps on discretionary spending that applied in FY2002, both the
Administration and Congress have to designate that funding as emergency. The
Administration designated all funding in its request as emergency funding.

In its action on the Administration's $28 billion request, however, Congress re-allocated $5.1 billion to other programs so that those funds no longer had an
executive branch emergency designation. For that reason, Congress designated the
funds as "contingent emergency funding," that would only be available to agencies
if the Administration also designated the funds as emergency. The president chose
not to do so, so those funds never became available to agencies.

FY2003 Emergency Supplemental Provides Some Flexibility to Fund Iraq War. In its FY2003 Emergency
Supplemental request, submitted shortly after the war in Iraq began, DOD asked that
Congress provide $59.9 billion in the DERF and $2.9 billion in regular appropriation
accounts to fund combat and post war operations in Iraq as well as ongoing
operations in Afghanistan and enhanced security for defense installations.

Submitted on March 25, 2003, two days after the war with Iraq began, DOD's request was to cover the costs of four to five months of pre-deployment buildup that
had already occurred, combat operations that had just begun, transitional costs during
the post war period, and reconstitution of forces after the war. In its justification
materials, DOD argued that "because we cannot know exactly what military
operations might look like, it is impossible to know exactly the pace, scope, and
accounts related to expenditures," and "for this reason, we are requesting that the
majority of the funding [should] be appropriated in a [flexible DERF] transfer
account." (89)

Preferring to accelerate allocation of funds to the services, the appropriators moved $44.0 billion of the requested funds to individual accounts, but kept $15.7
billion in a newly-established flexible transfer fund, the Iraqi Freedom Fund (IFF) in
order to give DOD "flexibility to manage the war effort" and the "many unknowns
in the conduct of combat operations." (90)

To provide additional flexibility, Congress also provided $2 billion in general transfer authority for funds in the FY2003 Emergency Supplemental. (91) At the same
time, Congress required that DOD follow standard reprogramming procedures,
including prior approval procedures when appropriate.
(92) As in the previous
supplemental, DOD was required to provide five-day advance notification of
transfers from the IFF.

Within the IFF, Congress set statutory ceilings and floors on various types of expenses, (e.g. fuel and classified programs). (93)
Once the amounts governed by the
ceilings were taken into account, the Secretary of Defense had flexibility to transfer
a total of between $10 billion and $11 billion to respond to the uncertainty of major
combat operations. (94) The FY2005 Budget
Amendment requests a larger amount of
flexible funds for DOD.

Reporting Requirements. As in previous supplementals, DOD was required to report transfers of funds quarterly.
The appropriators also stated that they expected DOD to be able to produce "better,
more refined projections of expected costs," later in the year and to provide the
committees with a "comprehensive financial analysis and update for FY2003,"
including both actual and projected obligations for both peacetime and war-related
spending. (95) Although these reporting
requirements were more extensive than in the
previous two supplementals, the reports were not required to include planning
assumptions or cost drivers as Congress required in monthly reports after the first
Gulf War.

In addition, the appropriators added several new restrictions to ensure that funds in the supplemental were not used to fund programs previously denied by Congress
or for items that would not be available within four years.
(96) In report language, the
appropriators required advance approval of funding for any investment items that
would be fielded more than 18 months from enactment.
(97)

FY2003 Regular Budget Requests $10 Billion for Contingencies. Earlier in 2002, in its regular FY2003 budget, DOD
requested discretion to transfer $20.1 billion from the Defense Emergency Response
Fund either for force protection, communication, or other projects, including up to
$10 billion to be "used to fund continued operations for the war on terrorism." (98)
Congress initially refused to provide the $10 billion for unspecified war costs.

The Administration later provided an allocation of the $10.0 billion by appropriations title (for example, "Military Personnel" for all services). Although the
Armed Services committees authorized the funds, Congress initially refused to
appropriate funds. Later in the year in response to DOD concerns that there could be
a shortfall of funding for Afghanistan and intelligence activities, Congress included
these funds in the FY2003 Consolidated enacted on February 20, 2003, (P.L. 108-7)
but provided the funds in regular appropriation accounts.
(99)

FY2004 Emergency Supplemental Limits Amount of Flexible Funding. Reversing course in the FY2004 Emergency
Supplemental, DOD requested all but $2.0 billion of the $65.6 billion for DOD in
regular appropriation accounts to fund ongoing operations in Iraq and Afghanistan
and enhanced security. The only exception was $2.0 billion requested in the Iraq
Freedom Fund to cover the cost of foreign forces or to pay for U.S. troops if foreign
forces did not become available. Congress accepted this rationale (P.L. 108-337).

Submitted in September 2003, the FY2004 Emergency Supplemental was intended to "sustain the level of support necessary to continue our operations in Iraq
and Afghanistan ... "and "other areas around the world," and to pay for a force
structure that was expected to decline from five to two-plus active U.S. Army
divisions in Iraq. (100) DOD's reduced request
for flexible funds was predicated on the
greater predictability of costs after the end of the war.

With the recent upsurge in violence, and the decision to keep an additional 20,000 troops in Iraq for the indefinite future, the Army has expressed concern that
it will not have sufficient funds to last the year. Others observers, including DOD
officials, believe that funds can be transferred from other activities where expenses
have been lower than anticipated. Although the Army's costs are likely to be higher
than anticipated, their needs may be able to be accommodated by transferring funds
from other services and other areas within the Army. Rather than relying on a
flexible account, DOD may be able to use the additional transfer authority that it was
provided in the FY2004 Emergency Supplemental.
(101) Expanding general transfer
authority, but requiring that reprogramming practices are followed, may be an
alternative approach to giving DOD flexibility while maintaining traditional
oversight mechanisms.

As in the previous two supplementals, DOD was required to provide five-day advance notification of transfers from the IFF (or the DERF in FY2002), and to
report quarterly to the congressional defense committees on all transfers. In addition,
the FY2004 supplemental also formally closed the Defense Emergency Response
Fund. (102)

Appendix A: Extent of Flexible Funding Since 9/11 Attacks

In the two and a half years since the September 11, 2001 terrorist attacks, the
Department of Defense (DOD) has received $165 billion in supplemental funding for
the war and occupation of Iraq and Afghanistan and enhanced security for defense
installations (referred to by DOD as Operation Noble Eagle). The Administration
requested much of this funding for the "global war on terror" in flexible accounts,
emphasizing the difficulties of predicting the cost of combat operations and
occupation costs.

Amount of Flexible Funding in Post 9/11 Supplementals. Although Congress has provided most of the DOD
funding requested by the Administration for the "global war on terrorism," Congress
has not provided most of that funding in flexible accounts despite Administration
requests (see Table A1). Of the $173 billion that the Administration has requested
for operations in Iraq and Afghanistan and for enhanced security for defense
installations since the 9/11 attacks, the Administration requested $104 billion in
flexible funds and the remaining $69 billion in regular appropriation accounts. In
response, Congress appropriated $44 billion in flexible accounts and $127 billion in
regular accounts.

Notes and Sources: Includes effects of later rescissions. CRS calculations based on
requests and enacted levels.

Share of Flexible Funding in Post 9/11 Supplementals. In previous supplementals, the Administration
requested that between 80% and 100% of DOD's funding be provided in a flexible
fund (see Table A2 below). While Congress has generally provided the amount of
funds requested, with the exception of the P.L. 107-38, the supplemental passed in
the aftermath of the attacks, and the FY2002 Emergency Supplemental (P.L.
107-206), Congress, has not been willing to provide the degree of flexibility
requested.

Since then, Congress has pared back DOD's requests, providing about 20% in a flexible account in the FY2003 Supplemental (P.L. 108-11) and 3% in the FY2004
Supplemental (P.L. 108-106).

Table A2. Extent of DOD Flexibility in
Supplementals Since 9/11 Attacks: Share of Total Funding (as
percent of total)

Emergency Supplemental Appropriations Act for Defense and for the
Reconstruction of Iraq and Afghanistan, 2004.

Footnotes

1. (back)In the FY2003 Emergency Supplemental,
DOD received $15.7 billion in the Iraq Freedom Fund
but within that total, DOD had flexibility to use about $10 billion to $11 billion (see discussion
below). In the FY2001 Emergency Supplemental, DOD received $14 billion of the $20 billion that
the President could allocate at his discretion.

2. (back)Most funding for DOD is available for
from one to three years depending on the type of expense.
Operation and Maintenance funding is available for one year.

41. (back)DOD's regulations require prior
approval from the congressional committees for any of the
following changes in funding: more than $10 million for military personnel, more than $15 million
in a budget activity or depot maintenance funded in Operation and Maintenance accounts, an
increase or decrease of $20 million or a 20% decrease in a procurement line-item, sub-program, or
modification, or $10 million for increases or $20 million for decreases to RDT&E; See Office of the
Under Secretary of Defense (Comptroller), Budget Execution Flexibility, FY2003, available on the
web at http://www.defenselink.mil/comptroller/execution/Final_Budget_Execution_2003.pdf.

42. (back)According to DOD's financial
regulations, a congressional interest item is one where the
committees use the phrases "only for" or "only to" or where items are identified in conference report
tables; see "Reprogramming of DOD Appropriated Funds, DOD Financial Management Regulation,
Volume 3, Chapter 6, p. 6-1.

48. (back)Letter from Jim Nussle, Chairman,
House Budget Committee and John Spratt, Ranking Member,
HBC, to Under Secretary of Defense (Comptroller), Dov S. Zakheim, November 3, 2003; in a
subsequent meeting in February, 2004, DOD informed congressional staff that DOD would not
provide the model or the additional information requested on personnel levels, rotation plans, air and
sea operations, aircraft deployed, transportation, maintenance, coalition support or amount of
recurring costs.

49. (back)DOD initially spent funds directly out
of this account rather than using it as a transfer account.
Starting in FY2002, in response to congressional direction, DOD returned to transferring funds from
this account to the services regular accounts.

55. (back)Communication from the President
of the United States, Request for Fiscal Year 1991
Supplemental Appropriations for the Department of Defense in support of Operation Desert
Shield./Desert Storm Pursuant to 31 U.S.C. 1107, February 25, 1991.

59. (back)DOD could draw on the $15 billion
appropriated to the fund to the extent that contributions from
allies were not yet available but those funds had to be spent in individual appropriation accounts
specified in the act. Thus, the $15 billion provided a hedge to cover any gap between the deposit of
contributions and incurring of expenses for the war but its allocation by account was specified.

61. (back)Communication from the President
of the United States, Request for Fiscal Year 1991
Supplemental Appropriations for the Department of Defense in support of Operation Deserted
Shield./Desert Storm Pursuant to 31 U.S.C. 1107, February 25, 1991, p. 72.

63. (back)See CRS Report 98-823(pdf)F,
Military Contingency Funding for Bosnia, Southwest Asia, and Other
Operations: Questions and Answers, March 29, 1999. The Feed and Forage Act permits obligation
of funds only for "for clothing, subsistence, forage, fuel, quarters, transportation, or medical and
hospital supplies, which, however, shall not exceed the necessities of the current year."

64. (back)This authority was requested in a
general provision attached to the FY1995 supplemental
appropriations request (see Appendix A for language).

65. (back)Operating Forces refers to Budget
Activity 1 in the O&M title. For request, see Office of
Management and Budget, Budget of the U.S. government Fiscal Year 1996,Appendix, "Readiness
Preservation Authority," p. 1089.

73. (back)Letter from President George W. Bush
to Speaker of the House J. Dennis Hastert, September 12,
2001.

74. (back)P.L. 107-387; see also CRS Report RL31187(pdf), Combating Terrorism: 2001 Congressional Debate
on Emergency Supplemental by [author name scrubbed] and [author name scrubbed], September 27, 2002, for debate
about whether the 50% floor for assistance activities was met.

77. (back)Congress set amounts by either
appropriation accounts, or, in the case of DOD, by the ten major
categories adopted by DOD in the aftermath of the attacks; see Emergency Terrorism Response
supplemental attached to the F2002 DOD Appropriations Act, P.L. 107-117; see H.Rept. 107-350.

85. (back)DOD has periodically briefed
congressional committee staffs and provided snapshots at
individual points in time but has been required to provide any consistent reporting on either past
experience or future plans.